In short, it depends, Ed Morse, Citi’s global head of commodities research, told Rigzone.
“Yes, there is a danger, or at least a risk, of a greatly reduced ability to privately finance oil and gas projects,” Morse said.
“But the impact really depends on the pace of technological change and the cost structures of alternative fuels,” he added.
“We are primarily looking at two main uses: transportation and power generation; and we are mainly looking at two types of economies: advanced and emerging economies. And we are dealing with an energy transition process that sometimes results in high prices, domestic and global tensions and problems. So it’s going to be a bumpy road whether funding is available or not,” Morse continued.
“But it will be even more complicated with tight funding before there is a full enough transition to alternative fuels and storage/batteries for days when renewables are too intermittent,” he warned.
Morse told Rigzone that there is no doubt that oil and gas financing sources are dwindling, adding that there are private-side financial institutions that are unwilling to lend for the development of certain types of projects.
“Big oil companies don’t want to get into expensive projects that take more than ten years to get a return on capital,” Morse said.
“This is especially true for European companies, which basically limit projects to those that produce a return on capital within five years,” he added.
“Others are investing where there is existing infrastructure, such as the US Gulf of Mexico or offshore Brazil,” he continued.
Morse also noted that small businesses, particularly in the shale areas of the U.S., are finding ample private capital to finance projects, but said they are looking to see how they can maximize the use of cash for reinvestment in instead of relying on new capital, “thus behaving as if capital is already limited”.
Unequal distribution of resources
There is still an uneven distribution of oil and gas resources, according to Morse, who told Rigzone that there are many countries that do not face significant financial impediments to investment, “especially those in the Middle East.”
“Many of them have sectors dominated by state-owned enterprises,” Morse said.
“It seems likely that they will continue to invest. Saudi Arabia, the United Arab Emirates, Kuwait and Iraq alone could add about 10 million barrels per day of liquids production (oil, condensate and natural gas liquids) in the next five years “, added.
“That would be more than enough to meet the highest projected level of demand growth that I know of. But the private sector would either be deterred from investing or find it risky. But the capital might be available,” he continued.
Morse emphasized that “there is little danger that the world will run out of oil or gas resources at any time in the foreseeable future.”
It is unlikely that the industry will run out of funding sources
When asked if there was a danger of the oil and gas sector running out of funding in the future, Vikas Dwivedi, global oil and gas strategist at Macquarie Group, said it was unlikely the industry would run out sources of funding and funding. .
“Understanding that there is a lot of pressure for financial companies to exit the sector due to ESG concerns, we believe oil and gas will remain a vital part of the global economy for a long time to come,” he told Rigzone.
“If the industry is well managed for the benefit of all stakeholders, funding will remain available even if the mix of suppliers and type of suppliers changes over time,” added Dwivedi.
BNP Paribas Pullback
Earlier this month, BNP Paribas, which defines itself as the European Union’s leading bank and a key player in international banking, said it will reduce its financing of oil exploration and production by 80 percent in the year 2030.
In a statement posted on its website, the bank said it would do so by ceasing to provide any funding dedicated to the development of new oil fields, phasing out funding to non-diversified oil exploration and production players it seeks to support to oil production. , and reduce the share of general facilities of social purpose that is allocated to the exploration and production of oil.
BNP Paribas has also highlighted in the statement that all financing dedicated to the development of new gas fields will cease. The bank announced in January that it was committing to cut funding for gas exploration and production by more than 30 percent by 2030.
“It is one of BNP Paribas’ strategic priorities to make a significant contribution to the financing of low-carbon energy, mainly renewables, to support the transition of the wider economy away from fossil fuels,” BNP Paribas said in the communicated
“BNP Paribas has already largely changed its energy financing activities. By the end of 2022, low-carbon energy accounted for almost 60 percent of BNP Paribas’ total financing in the energy sector,” the bank added.
“As announced on January 24, 2023, BNP Paribas aims to further shift its energy-based financing to 80 percent for low-carbon energy, representing at least €40 billion ( 42.9 billion dollars).In line with this commitment, BNP Paribas has decided to significantly reduce its support for the oil and gas exploration and production industry,” he continued.
In its statement, BNP Paribas highlighted that the bank aims to deploy 200 billion euros ($214.5 billion) “to support its clients’ transition to a low-carbon economy by 2025 “.
“As BNP Paribas continues to align its loan portfolio with a net zero trajectory, the bank reiterates one of its key objectives of its GTS 2025 plan: to position the group as a leader in the energy transition,” the bank said in the statement
“BNP Paribas remains strongly committed to its goal and is well on its way to achieving its goal,” he added.
To contact the author, please send an email andreas.exarcheas@rigzone.com
